THE National Treasury will next year introduce new legislation to ring-fence fairness, openness and integrity in the banking sector after Standard Chartered Bank admitted to manipulating the rand as pressure mounted on the South African Reserve Bank (SARB) to act against the banks, some of which are still denying involvement in the scandal.
Standard Chartered became the second back to pay a settlement after admitting to manipulating the rand during the period 2007 to 2013. Earlier, Citibank also paid a settlement of R69.5 million, with 26 other South African and international banks still appearing before the Competition Tribunal over their involvement in the scam that affected remittances, employees and the economy at large.
Although the SARB said it was banking on the Competition Commission to deal with the banks – attracting considerable criticism for its lack of action - Treasury has now said that that it was ring-fencing the financial services sector to avoid a recurrence of the manipulation of the rand by banks. This would be achieved through the introduction of legislation next year.
The Treasury said on Friday: “National Treasury will in 2024 introduce further legislation to ensure South African financial markets are fair, transparent and operate with integrity.
“The Conduct of Financial Institutions (COFI) Bill will propose that Over the Counter (OTC) Derivative Providers are carried into the COFI licensing activities and will be subject to the COFI Act.”
It said it viewed the manipulation of the rand by banks “in a serious light” and welcomed the R42.7m fine levied on Standard Chartered Bank for its involvement. Standard Chartered has said it would give up communications between former employees involved in fixing spreads and fixes together with employees of other banks.
The treasury said while Standard Chartered Bank had admitted fault, other banks were denying any wrongdoing in addition to challenging the allegations. Standard Bank is one of those banks that is denying any wrong-doing or involvement in the rand manipulation saga despite being cited by the Competition Commission for alleged involvement.
Over the weekend, Standard Bank reiterated that had “not manipulated the value of the rand” and added that it had “not engaged in any anti-competitive or criminal” conduct. It said: “Standard Bank would continue to use every avenue provided to it in law to defend itself against these false allegations.”
However, there is widespread concern that the actions of the banks may have continued beyond the period being investigated by the Competition Commission. Banking sector insiders said over the period investigated, banks were profiteering from the scandalous manipulation of the rand.
As the hearings at the Competition Tribunal continue, the SARB’s lack of action is being criticised by South Africans who feel hard-done by from a scandal that happened for such a long time. The SARB governor, Lesetja Kganyago, said last week that the issue was under the jurisdiction of the Competition Commission.
“Should they require any further assistance from us, they will get it. But they are the competent authority to investigate any allegations of market abuse or market manipulation… they must be given the space to do their work and follow their processes,” he said.
Legal and policy analysts said on Saturday that the SARB had a mandate to protect the value of the rand and to prevent abuse of the financial system.
“You can’t abdicate that to the Competition Commission exclusively. Also the Reserve Bank has more resources and technical capacity to monitor and investigate this kind of bank malpractice. The bank is very active in raising interest rates in the name of protecting the Rand (but) they seem to take an opposite approach when banks are responsible for devaluation of the Rand,” wrote one analyst, who declined to be named.
South Africa has a reputation of heavy-handed regulation of the banking sector and banks. However, earlier this year, the Financial Action Task Force (FATF) put South Africa on its grey list of countries under closer scrutiny on standards related to financing terrorism and money laundering.
Speaking at the announcement of the policy rates last week, Kganyago said hat the Competition Commission had jurisdiction over the mater, Eyewitness News reported.
“Should they require any further assistance from us, they will get it. But they are the competent authority to investigate any allegations of market abuse or market manipulation.
“They must be given the space to do their work and follow their processes and we should not burden them with asking for running commentary. Beyond that, you are not going to get any further comment from the reserve bank,” he said, it was reported.
Evidence and admissions by Standard Chartered and Citibank that they manipulated the rand have prompted Treasury to start ensuring that the spot over the counter market reforms be considered as part of the review of the Financial Market Act Bill (FMAB).
The draft FMAB, which is under development, proposes that foreign currency be included in the definition of “security” and also seeks to ensure that providers of over the counter securities are to be brought under FSRA as a licence category.
The bill will also push for market abuse provisions to be extended to applicable security which means will define a security as one made available for trading on a trading venue or a foreign trading venue and deem benchmarks as any such or derivative instrument related to, or whose price or value is dependent on, a security.
If the allegations against the banks are proven to be true, they would indicate the prevalence of poor market conduct practices at that time, added Treasury. It had already submitted regulations to ensure that banks do not engage in unfair practices or misconduct when setting reference rates, which are used in the pricing of derivatives and other financial contracts.